PRIME Finance

Toespraak | 16-01-2012

Ladies and gentlemen,

Thank you for the opportunity to be part of the opening of PRIME Finance. A new prestigious international institute in an old prestigious building.

A building that is not only an example of the legal tradition of The Hague, but also of the power of entrepreneurship. Because it was Andrew Carnegie who funded this building. And Carnegie was the embodiment of the American dream: from poor immigrant to wealthy businessman. But he became more famous as a philanthropist. So he spent his retirement years commissioning libraries, buildings and peace initiatives. He also commissioned two books. One was The Law of Success in 16 Lessons. This book was based on interviews with self-made industrial giants as Henry Ford, J. P. Morgan, Rockefeller and Edison. In the last chapter the writer states that labour and capital have a mutual and common interest. Neither can permanently prosper without the prosperity of the other. They are parts of one body. If labour is the arm, capital is the blood – and each must care for the other.

If you read ‘labour’ as entrepreneurship, that is a very apt description of the Dutch business model. As you know, the Netherlands is a small and open economy. We have a long tradition in global trade. In the East and in the West. Then and today, international trade is the engine of the Dutch economy. To illustrate: our export represents over 70% of the Dutch Gross Domestic Product and the Port of Rotterdam is one of the five biggest ports in the world. And since bartering does not foster efficient trade, Dutch banks and providers of financial services have developed and grown alongside the Dutch entrepreneurs and traders. Almost 500 years ago they started to offer their services to international customers abroad. That resulted in large Dutch financial conglomerates that operated globally. Nowadays, Dutch banks have assets valued over four times our Dutch GDP.

We are now a relatively small country with a relatively big financial sector. This gives us a neutral position between the big western financial centres and smaller financial centres including the emerging markets. That’s why PRIME Finance suites the Netherlands very well. PRIME Finance is the first legal institution focussing solely on financial disputes between professional parties. That way we can centralize dispute settlement for complex financial products such as derivatives and legal certainty can be improved. In combination with the other services that the institution provides, I am sure that PRIME Finance can make a very useful contribution to restoring faith and stability of the financial markets. And that is certainly necessary!

I am not going to explain the credit crunch to you but we all know that the bite was even worse than the bark. Especially in a country that has a relatively big financial sector. When the crisis was at its peak, the Dutch government had to step in to secure financial stability. At a price. We injected nearly 14 billion Euros of tier-1 capital in three major Dutch financial institutions. The Fortis ABN AMRO bank was nationalised, and is still a state owned bank. The Dutch government also issued guarantees for more than 50 billion Euros on unsecured bank loans.

We learned our lesson the hard way: we have to mitigate the risks stemming from the size of the banking sector. Systemic risks must be contained, so that financial stability is maintained. In order to do that, I have introduced a range of new policy initiatives, all aimed at:

• making banks better able to absorb losses,
• and to make it easier and less costly to sort out banks that still get into trouble.

What are these new measures? Let me highlight only a few:

1. The most straightforward measure is that banks will be required to hold more equity. Banks with a higher buffer can absorb bigger shocks. The largest banks, the banks that are too big to fail, have to hold an additional buffer.
2. The second measure is that banks will have to draw up Recovery and Resolution plans. They have to do that together with the supervisor. These plans will contain strategies of how to get out of trouble in time, and how to orderly wind down their large and very complex firms.
3. And if it still goes wrong there is my crisis management bill. This bill will grant the supervisor and the Minister of finance more powers to wind down banks. Even against the will of the shareholders.
4. The fourth measure is that starting July, banks will have to pay a quarterly risk based fee into a deposit insurance fund. This will stimulate banks to assume less risk and it lowers the bill when the deposit insurance has to be paid out.

These measures will make our financial sector more resilient against systemic shocks, so that banks can once again do what they are meant to do: support the economy. But, of course we all know we are not out of the woods just yet. The on-going Euro crisis imposes new risks on governments as well as on banks. Therefore, we have to stay on our guard.

In this context rules alone are not sufficient. A real change in the way things work has to come from inside the system. After all, it is not an ideal situation when a financial institution only sticks to the rules because it is forced to do so. Good entrepreneurship is mainly self-regulating. That’s how it should be. This is why I support self-regulation, and grassroot initiatives like PRIME Finance wherever possible. However, it is unavoidable that the flood of rules and laws, both national and European, will keep flowing in the near future. But we have to take care that all this legislation will not lead to legal uncertainty. That’s where PRIME Finance can play a significant role.

Especially because the financial sector is a very complex sector. And, furthermore, a sector in which huge sums of money are involved. Therefore, it’s inevitable that differences of opinion will arise, and potentially serious conflicts concerning major interests. PRIME Finance provides a magnificent service, a collection of the best legal minds with tremendous knowledge of the financial sector and all its complexities. As such, it shall be ideally suited for the resolution of conflicts over complex financial products such as derivatives, and improve legal certainty at the same time.

And in your and in my work, in the world of trade and of finance, let’s try to adhere to the concluding lesson from The Law of Success: do unto others as you would wish them to do unto you if your positions were reversed. Because all of your actions and your thoughts will come back to you, for better or worse. If we keep that Golden Rule, that moral appeal in mind we can regain trust in the financial sector.

I am sure that PRIME Finance will be a great help in achieving that aim!